UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2004
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to .
Commission file number 001-31906
HIGHLAND HOSPITALITY CORPORATION
(Exact name of registrant as specified in its charter)
| MARYLAND | 57-1183293 | |
| (State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) |
8405 Greensboro Drive, Suite 500, McLean, Virginia 22102
Telephone Number (703) 336-4901
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes ¨ No x
As of November 12, 2004, there were 40,002,011 shares of the registrant’s common stock issued and outstanding.
HIGHLAND HOSPITALITY CORPORATION
INDEX
| Page | ||||
| PART I | ||||
| Item 1. |
Financial Statements | 3 | ||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 17 | ||
| Item 3. |
Quantitative and Qualitative Disclosures About Market Risk | 24 | ||
| Item 4. |
Controls and Procedures | 24 | ||
| PART II | ||||
| Item 1. |
Legal Proceedings | 25 | ||
| Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds | 25 | ||
| Item 3. |
Defaults Upon Senior Securities | 25 | ||
| Item 4. |
Submission of Matters to a Vote of Security Holders | 25 | ||
| Item 5. |
Other Information | 25 | ||
| Item 6. |
Exhibits | 25 | ||
2
HIGHLAND HOSPITALITY CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
| September 30, 2004 |
December 31, 2003 |
|||||||
| (unaudited) | ||||||||
| ASSETS |
||||||||
| Investment in hotel properties, net |
$ | 579,285 | $ | 147,562 | ||||
| Asset held for sale |
3,000 | — | ||||||
| Deposit on hotel property acquisition |
8,000 | — | ||||||
| Cash and cash equivalents |
30,686 | 225,630 | ||||||
| Restricted cash |
37,659 | — | ||||||
| Accounts receivable, net |
10,203 | 2,917 | ||||||
| Prepaid expenses and other assets |
5,944 | 3,379 | ||||||
| Deferred financing costs, net |
3,036 | — | ||||||
| Total assets |
$ | 677,813 | $ | 379,488 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| Long-term debt |
$ | 293,072 | $ | — | ||||
| Accounts payable and accrued expenses |
17,203 | 6,936 | ||||||
| Payable to affiliates |
— | 8,832 | ||||||
| Dividends/distributions payable |
3,687 | — | ||||||
| Other liabilities |
3,261 | — | ||||||
| Total liabilities |
317,223 | 15,768 | ||||||
| Minority interest in operating partnership |
8,419 | 8,457 | ||||||
| Commitments and contingencies (Note 12) |
||||||||
| Preferred stock, $.01 par value; 100,000,000 shares authorized; no shares issued and outstanding at September 30, 2004 and December 31, 2003 |
— | — | ||||||
| Common stock, $.01 par value; 500,000,000 shares authorized; 40,002,011 shares and 39,882,500 shares issued and outstanding at September 30, 2004 and December 31, 2003, respectively |
400 | 399 | ||||||
| Additional paid-in capital |
366,871 | 365,454 | ||||||
| Unearned compensation |
(6,956 | ) | (7,917 | ) | ||||
| Accumulated deficit |
(8,144 | ) | (2,673 | ) | ||||
| Total stockholders’ equity |
352,171 | 355,263 | ||||||
| Total liabilities and stockholders’ equity |
$ | 677,813 | $ | 379,488 | ||||
The accompanying notes are an integral part of these financial statements.
3
HIGHLAND HOSPITALITY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
AND PREDECESSOR STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
| Highland Hospitality Three Months Ended September 30, 2004 |
The Predecessor Three Months Ended |
Highland Hospitality Nine Months Ended September 30, 2004 |
The Predecessor Nine Months Ended September 30, 2003 |
|||||||||||||
| REVENUE |
||||||||||||||||
| Rooms |
$ | 24,722 | $ | 1,727 | $ | 53,265 | $ | 4,550 | ||||||||
| Food and beverage |
9,698 | 777 | 23,482 | 2,790 | ||||||||||||
| Other |
1,594 | 49 | 3,255 | 161 | ||||||||||||
| Total revenue |
36,014 | 2,553 | 80,002 | 7,501 | ||||||||||||
| EXPENSES |
||||||||||||||||
| Hotel operating expenses: |
||||||||||||||||
| Rooms |
5,879 | 367 | 11,969 | 1,010 | ||||||||||||
| Food and beverage |
7,546 | 679 | 18,034 | 2,170 | ||||||||||||
| Other direct |
910 | 40 | 1,987 | 104 | ||||||||||||
| Indirect |
13,444 | 1,157 | 29,270 | 3,234 | ||||||||||||
| Total hotel operating expenses |
27,779 | 2,243 | 61,260 | 6,518 | ||||||||||||
| Depreciation and amortization |
3,192 | 171 | 6,918 | 512 | ||||||||||||
| Corporate general and administrative: |
||||||||||||||||
| Stock-based compensation |
758 | — | 2,348 | — | ||||||||||||
| Other |
1,494 | — | 4,457 | — | ||||||||||||
| Total operating expenses |
33,223 | 2,414 | 74,983 | 7,030 | ||||||||||||
| Operating income |
2,791 | 139 | 5,019 | 471 | ||||||||||||
| Interest income |
252 | — | 927 | 3 | ||||||||||||
| Interest expense |
2,852 | 222 | 3,498 | 665 | ||||||||||||
| Income (loss) before minority interest in operating partnership and income taxes |
191 | (83 | ) | 2,448 | (191 | ) | ||||||||||
| Minority interest in operating partnership |
(14 | ) | — | (80 | ) | — | ||||||||||
| Income tax benefit |
392 | — | 959 | — | ||||||||||||
| Net income (loss) |
$ | 569 | $ | (83 | ) | $ | 3,327 | $ | (191 | ) | ||||||
| Earnings per share: |
||||||||||||||||
| Basic |
$ | .01 | $ | .08 | ||||||||||||
| Diluted |
$ | .01 | $ | .08 | ||||||||||||
The accompanying notes are an integral part of these financial statements.
4
HIGHLAND HOSPITALITY CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
AND PREDECESSOR STATEMENT OF CASH FLOWS
(in thousands)
(unaudited)
| Highland Hospitality Nine Months Ended |
The Predecessor Nine Months Ended September 30, 2003 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net income (loss) |
$ | 3,327 | $ | (191 | ) | |||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
6,918 | 512 | ||||||
| Amortization of deferred financing costs |
63 | 27 | ||||||
| Minority interest in operating partnership |
80 | — | ||||||
| Stock-based compensation |
2,348 | — | ||||||
| Changes in assets and liabilities: |
||||||||
| Accounts receivable, net |
(1,889 | ) | (106 | ) | ||||
| Prepaid expenses and other assets |
(1,768 | ) | (107 | ) | ||||
| Accounts payable and accrued expenses |
7,665 | 211 | ||||||
| Payable to affiliates |
(1,328 | ) | — | |||||
| Net cash provided by operating activities |
15,416 | 346 | ||||||
| Cash flows from investing activities: |
||||||||
| Acquisition of hotel properties, net of cash acquired |
(416,743 | ) | — | |||||
| Deposit on hotel property acquisition |
(8,000 | ) | — | |||||
| Improvements and additions to hotel properties |
(2,568 | ) | (131 | ) | ||||
| Change in restricted cash |
(37,465 | ) | (120 | ) | ||||
| Net cash used in investing activities |
(464,776 | ) | (251 | ) | ||||
| Cash flows from financing activities: |
||||||||
| Payment of issuance costs related to sale of common stock |
(1,893 | ) | — | |||||
| Proceeds from issuance of long-term debt |
265,000 | — | ||||||
| Principal payments on long-term debt |
(269 | ) | (135 | ) | ||||
| Payment of deferred financing costs |
(3,099 | ) | — | |||||
| Payment of dividends to stockholders |
(5,198 | ) | (390 | ) | ||||
| Payment of distributions to minority interests |
(125 | ) | — | |||||
| Net cash provided by (used in) financing activities |
254,416 | (525 | ) | |||||
| Net decrease in cash |
(194,944 | ) | (430 | ) | ||||
| Cash and cash equivalents, beginning of period |
225,630 | 1,719 | ||||||
| Cash and cash equivalents, end of period |
$ | 30,686 | $ | 1,289 | ||||
| Supplemental disclosure of cash flow information: |
||||||||
| Cash paid for interest |
$ | 2,509 | $ | 638 | ||||
| Assumption of mortgage loans related to hotel acquisitions |
28,343 | — | ||||||
| Assumption of interest rate swap related to hotel acquisition |
948 | — | ||||||
| Issuance of operating partnership units |
125 | — | ||||||
| Issuance of restricted common stock to employees |
1,258 | — | ||||||
| Issuance of unrestricted common stock to board of directors |
129 | — | ||||||
The accompanying notes are an integral part of these financial statements.
5